If you're frustrated by the paltry 2%
of the average stock in the S&P 500, you're not alone.
Thankfully, you don't have to reach for yield by investing in
unstable companies or engineer a complex options strategy just to
get little extra income. Readers of my
newsletter know that it's just a matter of knowing where to look.
These five stocks
more than double the average yield of the U.S. equity
-- and have far outperformed it. The S&P 500, gained about 2%
in 2011, including dividends, but these standouts actually
delivered average total returns of 35.4% in the same 10 months.
Their long-term performance is just as impressive. In the past half
decade, they returned an average 11% a year, while stocks in the
S&P 500 are at break-even.
To find these income plays, I screened for steady, reliable
payers that grew both dividends and
in good times and bad.
Over the past five years, these companies hiked their dividends an
average of 6% a year. They are an exemplary group of dividend
growers, considering that the 500 industry-leading companies in the
S&P 500 actually reduced their dividends by 1% annually over
the same five years.
And 6% is just an average. Pipeline
and tobacco maker
Reynolds American (NYSE:
put in double-digit increases of 10% annually during the past five
Moreover, these shareholder-friendly companies have the wherewithal
to support their dividend increases. Like many high-yield stocks,
most of these companies are designed to pay out
and raise money to grow by issuing
So it's especially impressive that as a group they've been able to
grow per share earnings at an average clip of 12% a year during the
past five years. The 7% growth rate of the S&P 500 pales by
Past returns and growth rates can't predict future performance, but
these six picks look set to continue delivering growing dividends
and attractive overall returns going forward. Earnings projections
are difficult to come by, as some of these companies are not widely
followed. Nevertheless, the average estimated growth rate for all
but two of them (whose projections are unavailable) are a healthy
8% annually over the next five years.
Dividends for the group are expected to grow in tandem with
earnings. According to
projections, which have proven to be more than 90% accurate, their
dividends are anticipated to grow an average 4% annually over the
next three years.
All but two of these companies are expected to grow their dividends
(Reynolds and Sunoco are the exceptions) -- and are forecast to
grow dividends at an especially fast clip of 6% annually over the
next three years. The nice thing about dividend growth, besides the
bigger paycheck, is that investors often bid up stocks on their
dividend hikes, so total returns look promising as well.
Judging by their low
-- which measures how volatile their returns are compared with the
S&P 500 over the past year -- their performance can be expected
to hold relatively steady whether the markets go up or down. The
S&P 500 has a beta of 1 but every one of these picks carries a
beta of less than 1.
Reynolds American, for example, carries a one-year beta of 0.6.
That suggests the stock's returns tend to be around 40% less
volatile than the overall stock market, so whether stocks go up or
down, it should continue providing relatively steady returns.
Some of the others owe their resiliency to being major players in a
unique market niche.
Medallion Financial (Nasdaq:
W.P. Carey & Co. (NYSE:
are investment firms, but Medallion specializes in the business of
making loans to cabdrivers that need to buy a taxi medallion
license to drive their cabs. Taxi medallions are the legal permits
needed to operate taxis in certain cities. Carey's business is
worldwide, but it's equally focused: it makes
deals to help property owners free up capital for other
National Retail Properties (NYSE:
aren't niche players, but they operate under long-term agreements.
National has tenants such as the U.S. government and Sunoco
Logistics with oil refiner-marketing giant
Sunoco Inc. (NYSE:
, among others.
Action to Take -->
All these equities are outperforming in a tough market and have
also have outperformed over the long term. They carry above-average
yields and have a strong track record of earnings and dividend
growth. Better yet, they are projected to grow their dividend in
the years ahead, which should further support their share price and
performance going forward.
-- Carla Pasternak
Carla Pasternak does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of TAXI, WPC, NNN, RAI, SXL in one or more if its "real
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